Trends in the S&P 500

Swells of Uncertainty

The waves of uncertainty are washing ashore as the path to 2021 is unclear. On one hand we are experiencing an economic recovery but on the other is a second wave of coronavirus cases (overseas and domestic) that may reverse the economic recovery over the past few months. There are drug companies manufacturing a vaccine but there is a question of their efficacy as most vaccines take years to develop. Not to mention the thick and tedious political environment which is unlikely to end on November 3rd.

The stock market absorbs all this information and spits it out as a price for all to see. Most technical analysts are focusing on the very short-term as the long term outlook is too difficult to confidently predict for a market that has not trended since the January 2018 top.

In the chart below, I tried to illustrate since the 2009 low where the S&P 500 has trended. As you can see, markets that trend are contained by parallel lines with an upward trajectory that is predictable and characterized with low volatility. The 2018 top was significant as it marked the beginning of a period of high volatility and uncertainty. The differential between these two states in the S&P is dramatic and easy to observe. Obviously, the market is telling us that we as a group are uncertain about our future. One thing I know for sure is that it will not last forever and that a trend will once again emerge in this chart.

The S&P 500 showing when it trends and when it is volatile.

Tune in next week for the pre-election analysis on the stock market technicals!

Chart of the Week!

Does Google have a monopoly? Congress will be scrutinizing their business practices in what could be a tidal change in how silicon valley conducts business.

Economic & Central Banking Snippets 

  • Existing home sales in September totaled 6.54mm which is the most since May 2006. The number of months supply fell to 2.7 from 3.0, the lowest in data going back to 1999.
  • The Fed’s balance sheet has started its next ascent, rising for the 3rd straight week to a record high.
  • New applications for unemployment benefits so far this month have fallen to the lowest levels since the coronavirus pandemic shut many businesses in March. Weekly initial claims for jobless benefits, a proxy for layoffs, fell by 55,000 to a seasonally adjusted 787,000 in the week ended Oct. 17. Claims for the prior two weeks were revised lower. The revised level of claims for the week ended Oct. 3—767,000—was the lowest since the March 14 week, when fewer than 300,000 new claims were filed. Declining layoffs add to indicators the economy is continuing to heal from the pandemic-induced downturn. Still, with millions out of work and concerns about a resurgence of the virus in many parts of the country, many economists expect the pace of economic recovery to slow. (WSJ)
  • Existing Home Sales: Sales of previously owned homes rose to a new 14-year high in September. The latest figures for existing-home sales, which make up most of the housing market, marked the fourth straight monthly increase and one of the best stretches for the housing market in years. Real-estate agents and economists credit the strong demand for housing to record-low interest rates, a large population of millennials entering prime homebuying years and a desire for more household space driven by the coronavirus pandemic. As many people work and attend school from home, home shoppers are willing to move farther from their offices in exchange for bigger houses with more outdoor space. (WSJ)

Macro Snippets

  • Wells Fargo is exploring a sale of its asset management business, according to Reuters. The unit managed $578 billion on behalf of customers as of the end of June and could fetch more than $3 billion in a sale.
  • Tesla is recalling about 30,000 imported Model S and Model X vehicles in China because of suspension problems, according to the country’s State Administration for Market Regulation. The electric car maker, which only began manufacturing at Giga Shanghai this year, has said there is no defect and denied a need for a recall. (Investopedia)
  • Mattel’s (MAT) stock jumped 10% after the toymaker saw its biggest sales increase in a decade. The company reported Thursday that sales jumped 10% last quarter, with sales for Barbie up 29%. (Investopedia)
  • The price on AMC Entertainment Holdings‘ $1.4 billion bond due June 2026 dropped below 10 cents on the dollar this week, according to MarketAxess. Investors are dumping bonds tied to the world’s biggest movie theater chain, betting that attendance will remain low despite venues reopening in major markets. (WSJ)
  • General Motors’ GMC division has unveiled an all-electric Hummer, its challenger to upcoming EV pickups from Tesla, Ford, Nikola and Rivian. The convertible “supertruck” has GM’s new Ultium batteries offering 350+ miles of driving range and charging for 100 miles in 10 minutes. It goes 0-60-mph in 3 seconds and makes 1,000 horsepower. Starting at $112,595, it will be available fall 2021. (Investopedia)
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Paul J. McCarthy, III

President – Kisco Capital

Paul McCarthy

Mr. McCarthy is the President and founder of Kisco Capital.